Gold, the EU and the Fed

Central bankers hate gold. That’s surprising given that they
collectively own the lions share of what’s out there. The record is
pretty clear however, most of the majors have sold gold over the past
few decades. Today they have even more reason to hate it. It makes them
look bad. This chart shows that both the Euro and the dollar are losing
the race against gold as a store of wealth.

That the Euro is hitting all time lows against gold is an old story. But
the move has gone parabolic of late, including a 3% pasting today

A very high percentage of Europeans own some gold. Much more than
Americans. Younger people who don't own gold have parents that do. They
are more aware of gold as an asset class and something to turn to when
there is trouble. Therefore the collapse of the Euro against gold is
much more relevant then the fall in the EURUSD. EURGOLD is probably the
best barometer of how desperate Europeans see their collective financial
future. This does not bode well for consumer or business confidence.

The US Fed is adding to the misery of the EU Central bankers. They are
part of the problem, not part of the solution. They are contributing to
the appreciation of gold at a time when the Euro is weak versus the
dollar. This creates the exponential price action in EURGOLD.

Many things are influencing gold of late. Inflation in China, nuts
shooting cannons, a melt down of Europe’s financial picture and of
course the biggest of all is the Fed and its effort to create inflation
as a policy goal. What does this story from the WSJ do for gold?

It’s a good bet that Ben Bernanke and his talking heads will get their way. Actual inflation, and even worse, expectations of inflation
will rise. Gold will rise against the dollar as a result. It’s an
equally good bet that the Euro is headed lower against the Buck. So the
measuring stick that Europeans look at is going to get even more
stretched. I wonder if those European central bankers (and a few
political leaders) are hating Ben for adding to their woes.

"Everything is stacked up against the EU these days. Even the Fed."
Nope, that sentiment's inappropriate, misleading.
To assume that "things" are stacked against the EU and the Euro presume that people, places and events have in some way transpired in a dutifully negative manner, exacerbating if not creating problems, even implying the Euro a subject of victimization.
Which is profoundly disturbing in its perspective, for nothing has been stacked, aligned, organized or made wholly to defeat or destroy the EU or it's currency.
To the contrary, the fundamental premise upon which the Euro was established is in fact itself flawed; that a singular artificial, unified, fiat based monetary system could be imposed upon an un-unified, multicultural, multilingual, non-homogeneous legal, social and economic non-dependent and therefore artificial entity is simply an erroneous underlying assumption.
Thus it is not necessarily that the EU itself is at risk, for the initial premise of greater economic cooperation as intended by the EFTA and intentof the original charter remains logical. But it's expanded scope with respect to the expansion of the artificial nation state begins to stretch men's loyalties, appealing not to the soul or the identification of self, for there is no uniform EU self with which to identify.
Added thereupon, a singular artifical currency imposes artificial inflexibilities upon otherwise naturally functioning economic nation state realities.
It is not anything aligned against the Euro that speaks of its demise, but its own very illogical and confused existence. It is an artificial abomination doomed from inception, being proved unworthy in a most expensive, destructive and unnatural manner. Sadly for those of a pro-EU bent, this determination to save the Euro will likely cause the EU itself to dissolve when it might have otherwise flourished in some other manner whilst remaining affixed to the original array of national currencies.
The bastard currency may well doom the "Grand Experiment." The ego of men overreaching, greedily stretching yet again sacrificing principles to money, property, power and prestige.

Euro is just running naked ahead of the USA. When we implode, the Euro will catch up. Our disasters will make Ireland and Greece look like tinker toys.

What's striking is that the EU looks like a venue for the controlled demolition of nation states. One after another, losing their sovereignty, turning foreign and domestic control over to the central banks in a managed sequence.

At least Greece kindly waited 30 days after Obamacare was rammed down our throats to publicly expose European socialism as an utter failure.

Gold wins by default. Then the Gold Police will be giving you pat downs.

Krasting gets it right, the Fed and other CBs hate gold. They are in the credit/money business, right?

Fed panic @ QE doesn't help 'confidence'. Maybe it's not supposed to.

I figure part of QE is to buy Eurobonds. Why not, Bernanke did it in 2008, right?

I'm wary. Parabolic moves in any asset are preludes to crashes. There are a lot of oz. held as margin by 'institutions'. If somebody defaults in the EU the contagion will spread like wildfire and margin calls will dump a lot of assets on the market in a New York Minute.

A lot of paper gold will vanish in a heartbeat. That's how it always works.

Central bankers hate gold. That’s surprising given that they collectively own the lions share of what’s out there.

Imo, it is not surprising and would not say that they hate gold.

I think many of them have drawn simple conclusions from what it means to live in an expanding/shrinking environment.

For people who want to squeeze the most of each environment configuration, fiat money/gold(limited money) is the best in each case.

The control of money supply in a fiat system is easier to be done by adding to the pool. Withdrawing from the pool is extremely harder than adding.

This suits well an expanding environment: a fiat money system allows to monopolize each new addition, to take it all by expanding the fiat pool.

As shown very well by the US currently... Every new increased addition meets a demand by the US through emissions of credits, emission of credits made extremely easy by the fiat money system.

Monetization of an expanding environment: a certain amount of resources is added to the pool every day and the US has simply to convert the amount in USD credits to monopolize them.

Now a shrinking environment would severely reject this kind of behaviour with stuff like hyperinflation. Fortunately, gold (limited money) is much better for this kind of environment. In a limited money system, control of money supply is more easily achieved by withdrawing from the pool rather than adding to it (which can be physically impossible)

In a shrinking environment, it is expected that the accumulated capital will grow in value as the capacity to repeat the process that led to that accumulation of capital will go thinner and thinner due to the shrinking environment.

Fits perfectly with gold. Gold will be hoarded more and more, paralleling the increased value of accumulated capital, the smaller and smaller circulation of it will also fit an ever shrinking environment.

As to now, people who can afford benefiting from this scheme want to make sure that most of the gold is extracted from the soil worldwide, to weaken possible perturbations. That is why they are circulating their own gold in order to maintain the possibility of buying gold. It is still expansion mode as more gold can be extracted and added, therefore fiat money is the best to achieve that.

They know they cannot match the demand of millions but that at a later stage in the game, they will be able to get back that gold.

So the emergency is to exploit the panic going on, to get millions bidding on gold, to add as much as possible vectors of demand on gold, which is going to make sure that gold that can be extracted is extracted.

Sweden, for example, used a copper standard for a while in the 1600s and 1700s. That didn't work out so well.

Because copper was so abundant — and because the value of coins was based largely on the value of the metal they were made of — Sweden's 10-daler coin was actually a ginormous 43-pound slab of copper, more than two feet long by one foot wide.

People have been making the case that runaway inflation is just around the corner as a means of objecting to the Fed's latest plan to try to help the economy, but there's no sign of an inflation problem in the data:

Consumer Price Index Summary, BLS: The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in October on a seasonally adjusted basis... As has frequently been the case in recent months, an increase in the energy index was the major factor in the ... increase. ...

The index for all items less food and energy was unchanged in October, the third month in a row with no change. ... Over the last 12 months, the index for all items less food and energy has risen 0.6 percent, the smallest 12-month increase in the history of the index, which dates to 1957. ...

The smallest 12 month increase in the history of the index and people are worried about inflation? This might be a good time to repeat this chart from the SF Fed that I've posted here in the past:

The CPI methodology was spayed and neutered to hide inflation long ago. Inflation calculated by the BLS using their own 1990 methodology shows real inflation has come down, but is 5.5% -- that's before QE II. Also, real unemployment is closer to 17.5%

M3 was dropped from being tracked by the Fed altogether in 2006. So naturally, it fell off the charts just 2 years later. I'm sure it was just coincidence.

Have you ever read the Minneapolis Fed magazine ("The Region")?? Kocherlakota is sharp and goes to the beat of a different drum. But he has a gargantuan ego. Since he took over after Stern they've replaced solid research analysis and graphs with about 10 huge photos of Kocherlakota per issue. Apparently Kocherlakota is under the impression he is Justin Bieber, instead of a solid candidate for weight watchers.

I read with interest some of your insights, and being a newcomer to this wealth of knowledge site, I sometimes just agree in silence, sometimes flare with violent sickness of what is happenning to our country and the world as a whole, but for someone to believe ANY BULLSHIT data from ANY US AGENCY about inflation, unemployment, etc. has got to have his/her head so far up his/her ass that it has got to be rebutted in public for the sake that some other dumb ass might believe it.

The answer to the inflation or deflation debate is YES. M3 is collapsing - as would be expected as the debt that backs the credit is defaulting. Lower M3 means asset-price deflation - and lots more coming.

However M0/M1 is responding quite well to BB helicopter POMO drops. That increase in TRANSACTIONAL money increases the cost of commodities we buy (e.g. energy, food, etc.). We are clearly seeing significant inflation in commodities. It may be true that the two net out (but I think not). I would say a zero inflation world of deflating asset prices with simultaneous commodity inflation is the worst possible scenario.

Meanwhile Case Shiller home prices are nosediving again. Perhaps residential real estate to collapse another 20% in coming two years.

Commercial real estate loans, usually rolled every 5 years, are also going down. Most banks are unwilling to provide new 5 year loans on commercial re when the value of the property is very uncertain, especially 5 years out.

This story in real estate is a small part of the overall story of the long train wreck that is the world economy.

The uncertainty created by the Fed and other CBs is a huge part of the problem. Who knows what the azz hats will do next?

Thus, people go to physical PMs. The one thing that the flocking Fed cannot screw up without totally wrecking the remainder of the economy....and, yes, I know they are playing paper games with PMs. Sit on physical, get popcorn, watch the game.

They own the same shit they have billions in dollar long calls in euro's.

The seceritization market is broken so the banks can not create new nitro credit. The buyers are gone tons of cash cow money gone. The banks are no longer giving out credit/ cutting lines of credit/cards all of this means asset deflation/cre ect ...

But oil/letters of credit in global trade/forex all use dollars for a medium of trade all this global trade needs to be serviced in dollars.

The days of easy credit are long gone but everything else still needs dollars and this will take place during long term global asset deflation not just the USA.

China built a manufacturing complex to service joe six pack dryhumping easy credit through the home cash machine ect... Since the early 80's joe was living of easy debt.

Shes about to blow up/asset bubble crash. ....

I hope to buy BIDU at $20.00 next year at this time. In 10 years it with be worth a mint ....!!! JMO

This pattern has repeated hundreds of times throughout history --- whereas your putative fiat currency deflation has never happened ONCE in recorded history. Currency debasement, price inflation and quite likely hyperinflation lie in our future, not some chimerical, never-before-seen fiat currency deflation. Count on it.

Everything else will meet deaths door 10 fold before the great dollar crash.

At worst we will have/need a global reset ( blackswan positive/shock) but with this we will still control 40-50% of a currency basket going forward.

The reset will cost china/eu leverage you can see the inflation we are now exporting what happens after cali bailout/ qe 3 ..... China would get crushed by food inflation. China is begging uncle ben no more bailout/printing but its to late.

Garlic is up 95 % in nov. already !!

Uncle ben will raise rates he must but even so after everything Spritzer 12 months ago you would have thought dollar at 80 was madness.

There is utterly no hope of conducting an honest or intelligent conversation with anyone who takes the bald-faced lies and propaganda of the BLS at face value. If you REALLY believe in their CPI numbers, I have a bridge in Brooklyn to sell you, AND some oceanfront property in Arizona.

The BLS would have the completely gullible believe that the average cost of living in the USA has only risen ~25% since the year 2000, when anyone with half a brain (or who even sporadically goes grocery shopping, or pays any bills) knows that the reality is closer to 60-70%.

Shadowstats' John Williams: Prepare For The Hyperinflationary Great Depression

John Williams, who runs the popular counter government data manipulation site Shadowstats, has thrown down the gauntlet to deflationists, and in an extensive report concludes that the probability of a hyperinflationary episode in America over the next year has reached critical levels. While the debate between deflationists and (hyper)inflationists has been a long and painful one, numerous events set off in motion by the Bernanke Fed (as a direct legacy of the Greenspan multi-decade period of cheap and boundless credit) may have well cast America as the unwilling protagonist in the sequel of the failed monetary policy economic experiment better known as Zimbabwe.

Williams does not mince his words:

The U.S. economic and systemic solvency crises of the last two years are just precursors to a Great Collapse: a hyperinflationary great depression. Such will reflect a complete collapse in the purchasing power of the U.S. dollar, a collapse in the normal stream of U.S. commercial and economic activity, a collapse in the U.S. financial system as we know it, and a likely realignment of the U.S. political environment. The current U.S. financial markets, financial system and economy remain highly unstable and vulnerable to unexpected shocks. The Federal Reserve is dedicated to preventing deflation, to debasing the U.S. dollar. The results of those efforts are being seen in tentative selling pressures against the U.S. currency and in the rallying price of gold.

A friend of mine bought $10,000 of crocs at 85 cents 2 years ago its up over 15$ he made a killing.

Inflation ?

Your trading/wishiing for higher pricing in silver is like everything else before it.

"South Florida," he said, "is working off of a totally new economic model than any of us have ever experienced in the past" according to a realtor who predicted that a land shortage will support higher prices indefinitely."

" A very high percentage of Europeans own some gold. Much more than Americans. Younger people who don't own gold have parents that do. They are more aware of gold as an asset class and something to turn to when there is trouble. "

While I do agree Europeans tend to turn far more to gold than Americans thanks to history, I wouldn't say "a very high percentage" of Europeans own gold, other than in the form of jewels.

At least in the contemporary society. Up to the 1970s, it wasn't indeed rare to see gold in the safes of old bourgeois in Paris - this is no longer the case.

Most people now have no clue what gold is and why it is a safe heaven, and knowing the individual investor circles in France, I can say for sure that no more than 2% currently owns PMs.

The pro-fiat propaganda in the media has worked quite well, especially since the avènement of the euro.

Somewhere it is reassuring: there can't be a bubble in gold for a very long time.